Give me a break, a tax break — or else

Tom Curry National affairs writer • Profile • E-mail

WASHINGTON - A tax break for windmills that generate electricity?

A tax break to spur employers in the region hit by Hurricane Katrina to hire new workers?

A tax break for Hollywood film and television producers?

What does any of this have to do with the $700 billion bill to rescue banks and investment firms that the House is expected to vote on Friday?

Well, nothing and everything.

The tax breaks, which were added to the bailout legislation passed by the Senate on Wednesday, are part of a budget package that it approved last month. The House would not agree to this package unless offsetting revenues were found somewhere (by means of a tax increase or spending cuts).

As with a lot of items in the tax code, many of these provisions are limited to a finite lifespan (usually one year) in order to fit into overall revenue forecasts required by law.

The fight over these tax provisions is one of the Capitol’s long-running battles. The House and Senate have spent months arguing over the so-called “tax extenders,” which add $106 billion to the cost of the legislation, and whether offsetting revenue raisers would be added to the legislation.

A way to end the impasse
As this week started, the leadership of the two bodies had reached an impasse.

But on Wednesday in the midst of the international banking crisis, the Senate found a way out: It essentially told House leaders there’d be no financial sector bailout bill unless the tax extenders package was attached to it.

That’s why House Democratic Leader Steny Hoyer, who had bitterly opposed passing an extension of the tax breaks without some means of raising revenue to pay for them, had an air of resignation on Thursday.

The growing feeling among members of Congress is the financial sector bailout needs to pass. The tax extenders package is simply one of the prices of passing it.

As passed by the Senate Wednesday night, the bailout bill would provide a number of tax incentives related to energy and fuel production and energy conservation.

Tax breaks in Senate bailout The following items were added to the Senate bailout legislation: New tax breaks: Film and television productions (Sec. 502) Wooden arrows designed for use by children (Sec. 503) 6-page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504) Tax “extenders” (extensions of previous tax breaks): Virgin Island and Puerto Rican rum (Section 308) American Samoa (Sec. 309) Mine rescue teams (Sec. 310) Mine safety equipment (Sec. 311) Domestic production activities in Puerto Rico (Sec. 312) Indian tribes (Sec. 314, 315) Railroads (Sec. 316) Auto racing tracks (317) District of Columbia  (Sec. 322) Wool research (Sec. 325)

According to the non-partisan Congressional Budget Office, the bill also includes several provisions that would raise revenue, such as new requirements imposed on stock brokers for the reporting of some their customers’ transactions.

Some of the tax breaks might strike most taxpayers as oddball, frivolous or exotic.

Why, for instance, did the Senate think it was necessary to repeal an excise tax on a certain type of wooden arrow?

One answer: Because it was important enough to Oregon’s two senators, Democrat Ron Wyden and Republican Gordon Smith, to get that provision in the bill to help an Oregon-based manufacturer.

And why did the Senate extend certain tax breaks for residents of the U.S. territory of American Samoa from 2008 to 2010?  One probable reason: Democratic leaders in House and Senate are sensitive to the fact that American Samoa has only a non-voting representative in the House. He happens to be a Democrat, Eni Faleomavaega, and has proven adept at persuading Democratic leaders to pay attention to his constituents.

Among other tax breaks that would be given a new lease on life: tax relief for regions of the country affected by severe storms this year and a break from the alternative minimum tax, or AMT, for 2008.

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